Advocating for credit data evaluation

Guidelines over the elimination thereof.

July 14, 2020

(Revised November 2, 2021)

As passed by the House, the HEROES Act contains many concerns pertaining to responsible consumer reporting, e.g. the suspension of negative reporting and limited interpretative guidance to servicers and CRAs.  Service 1st strongly advocates for a robust consumer reporting environment that supports full consumer credit histories for the good of all consumer segments and benefit providers.  For further information on the consumer reporting industry’s response to COVID-19, visit the CDIA or NCRA websites.

Apologies for this “soapbox” moment.

Here’s this week’s homework assignment. Ask one of your seasoned underwriters to take that face mask they’ve been wearing so diligently and move it up to cover their eyes. Have them open a borrower’s current credit report. Then, ask your seasoned underwriter whether there are reasonable conditions that should clear for this borrower or whether you should decline the application. Yes, a rather obvious outcome, but truly an accurate representation of current decisioning conditions.

How should your underwriters be expected to underwrite when only positive information is reported on a credit report? If a consumer has good income and an equally good valuation – they’re in, but that’s only 2 of the 3 C’s of credit. Remember, its character, capacity, and collateral.

Without a legitimate credit report, we’re missing 33% of the decisioning equation.

If FICO scores are dependent on credit reports, and the mortgage approval process reviews FICO scores, then the mortgage industry requires an accurate credit history. For goodness sake, lenders need to know if a consumer has declared bankruptcy by looking at their credit report. Deleting bankruptcy history from an infile should not be a discussion point in the halls of Congress.

And yet, data deletion is what the U.S. House majority has advocated for and passed via the HEROES Act. Stepping back, I would venture a guess that we all recognize much of the economic hurt affecting our neighbors as a result of the COVID-19 crisis. It is horrible, outright horrible.

Enabling our financial system to continue functioning during the midst of a global virus pandemic is nearly miraculous. But here’s something to keep this in mind.

Segments of shoddy underwriting in the 2000s caused a deep, worldwide recession for many years. How then, can we expect something better if we unleash non-reporting for the entirety of the U.S. population? My clients know their shops, and they know their investors.

The cost of credit will rise, the cost of originations will increase, and the availability of credit will decrease – especially for underserved communities where there’s considerable positive progress right now.

The point is – do not eliminate or suspend data. As the reader of this article, if you have any interaction with your IT team and your company compiles data in a database, your IT team always advocates limiting conditions where data is purged. Data evaluation guidelines for lending are the direction regulators and government must seek, not the suspension of data reporting.

The rapid escalation of the COVID-19 crisis in the U.S. required a fast response like the CARES Act. We now have a brief opportunity to take a breath and evaluate general guidelines for industry to follow. Let’s do that, U.S. Senate. Let’s not squeeze one crisis and create two.

This is an important topic for your company as you speak with neighbors, regulators and legislators. I urge you to form your own opinion on this topic and speak up for your organization.

As a service provider to many in the mortgage industry, we’re ready with potent information solutions regardless of lending environment.

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